 Asymmetric competition among nation states: A differential game approachYutao Han (), Patrice Pieretti, Skerdilajda Zanaj and Benteng Zou Journal of Public Economics, 2014, vol. 119, issue C, 71-79 Abstract: This paper analyzes the impact of foreign investments on a small country's economy in the context of international competition. To that end, we model tax and public input competition within a differential game framework between two unequally sized countries. The model accounts for the widely recognized characteristic that small states are more flexible in their political decision-making than larger countries. However, we also acknowledge that small size is associated with limited institutional capacity in the provision of public services. The model shows that the long-term outcome of international competition crucially depends on the degree of capital mobility. In particular, we show that flexibility mitigates against – but does not eliminate – the likelihood of collapse in a small economy. Finally, we note that the beneficial effect of flexibility in a small state increases with its inefficiency in providing public services and with the degree of international openness. Keywords: Tax/public input competition; Open-loop/Markovian strategies; Differential games (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:119:y:2014:i:c:p:71-79 DOI: 10.1016/j.jpubeco.2014.07.008 Access Statistics for this article Journal of Public Economics is currently edited by R. Boadway and J. Poterba More articles in Journal of Public Economics from Elsevier |
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